Markets price 30 bps of Riksbank tightening over six months amid fading VAT effects and improving Swedish growth data.
The Swedish Krona (SEK) is trading with moderate strength into year-end as inflation trends and economic recovery reduce pressure on the Riksbank to act swiftly. Benign Consumer Price Index (CPI) and CPIF inflation have positioned Sweden favorably compared to G10 peers, delaying rate hikes despite supply disruptions from the Iran war.
With Value Added Tax (VAT) effects waning and growth data improving, markets now anticipate 30 bps of Riksbank tightening over the next six months. The IMF’s July report highlighted Sweden’s cyclical recovery, supported by policy measures and rising real incomes, reinforcing expectations for a potential rate hike later this year.
The Riksbank’s recent guidance indicated a higher probability of rate increases compared to its March assessment, aligning with market pricing. This outlook supports a range-trading environment for EUR/SEK, with a bias toward SEK strength.